Rising fees notwithstanding, many smaller hedge funds rely on an old standard for their risk management systems, Microsoft Excel, according to a new study from buy side research firm Carbon360.

“Funds under $4 billion rely on Excel or prime broker-delivered risk solutions,” said Brian Shapiro, president of New York-based research and consulting firm Carbon360. “The larger risk systems, which can cost up to $4 million to buy and install are completely unaffordable for the smaller funds.”

Instead, they’ve turned to the ubiquitous, more affordable spreadsheet (retail price: $229). According to the new study, fully 29% of hedge fund risk management is still based in Excel leaving a lot of room for growth in sales of risk systems.

“A majority of interviewed firms advised that their primary risk systems have all been built in-house,” Shapiro said. “This leaves open the opportunity for many of the vendors mentioned in this report to see strong sales in the years ahead.”

Carbon360 expects spending on risk and portfolio management systems will rise 17.36% this year to $5.25 billion and to $9.68 billion by 2011, driven by demand from alternative firm clients.

“We do see a trend in the uptick in demand for risk systems driven by institutional investors seeking greater transparency and risk controls,” Shapiro said.